The Eurozone & Its Snail Pace

The IMF has reduced the Euro-area growth forecast from 0.9% to 0.7% for 2013

Economic confidence in the Euro-area decreased more than economists forecast to the lowest in almost three years in July, suggesting the economic slump extended into the third quarter as governments struggled to tame the debt crisis. According to a report by the European Commission in Brussels, the index of executive and consumer sentiment in the 17-nation Euro-area dropped to 87.9 from 89.9 in June. That’s the lowest since September 2009. The Bloomberg News survey showed economists had forecasted a drop to 88.9, which is the median of 206 estimates. The debt turmoil which the European governments are struggling to contain, has undermined confidence and has forced Spain and Cyprus to seek external aid. Stuart Yeomans

On July 26th, shortly after Moody’s Investors Service put a negative outlook on Germany’s Aaa rating which caused the borrowing cost from Spain and Italy to surge to record highs, European Central Bank (ECB) President Mario Draghi had announced that policy makers would do whatever was needed to preserve the threatened currency. The Euro has depreciated by over 7% against the US dollar over the past three months after Spain in June asked for a loan amounting to 100 billion Euros to bail out its banks. Stuart Yeomans

In a report compiled by Moody’s, they cited that Greece could leave the Euro and there is an increasing likelihood that nations such as Spain and Italy would require additional support. Stuart Yeomans

With governments seeking ways to plug their budget deficits, the economy is edging towards its second recession in four years. Europe’s largest economy has grown more pessimistic as German’s business confidence in July fell to the lowest in the last two years and more than what economists had expected. On 16th July, the International Monetary Fund (IMF), reduced the Euro-area growth forecast for 2013 to 0.7% from 0.9% and said that the gross domestic product will drop 0.3% in 2012. The IMF had also cut its global growth forecast for 2013. Stuart Yeomans

Sentiments among European manufactures continued to look gloomy with the indicator of manufacturing confidence index falling to minus 15 from minus 12.8 in June. An indicator of services confidence dropped to minus 8.5 from minus 7.4, while a gauge of consumer sentiments fell to minus 21.5 from minus 19.8. Confidence in the construction sector has also continued to deteriorate. Stuart Yeomans

Economic data in Asia also showed weaknesses in the manufacturing industry. Japan’s industrial output unexpectedly declined and South Korean manufacturer’s confidence dropped to a three year low. Stuart Yeomans

According to a Bloomberg survey, the European Central Bank is expected to keep its benchmark rate at 0.75% when the council members meet on the 2nd August. In June, the Frankfurt based central bank had reduced borrowing costs to a record low. Stuart Yeomans